Why Meta Isn’t Fully Owning Its New AI Data Center

In an unexpected turn of events, Meta Platforms is giving up control of its new data center and it has nothing to do with Meta’s liquidity. This financing trick is set to become the standard approach for building Big Tech’s AI infrastructure without loading down the company’s own balance sheet.

Meta Platforms has made an agreement with investment behemoth BlackRock on the joint venture for developing the 1 gigawatt Meta data center campus in El Paso, Texas. At first glance, the deal implies Meta being in a disadvantaged position: BlackRock’s funds will own 80% stake in the venture, while Meta’s share will make up 20%. In reality, the Meta data center deal shows a different story. Meta deliberately keeps its huge AI investment off the balance sheet, but retains full control over the development process.(PR NewsWire)

What the Meta Data Center Deal Consists of

The deal’s core is the construction of a 1 gigawatt Meta data center campus for the company’s AI training and main applications. Total development cost amounts to approximately $14 billion.

In its part, BlackRock is providing approximately $4.9 billion in cash and a part of it is covered by $12.5 billion in separate financing through debt. Meta’s contribution consists of approximately $2.3 billion in land and construction assets. In order to even out the 80/20 ratio, Meta will also receive a one time payment of about $1 billion.

Once finished, Meta won’t just be an owner it will be the only tenant. The company will sign a lease agreement with four year term and four renewal options, allowing it to stay there for up to 20 years.

The Off Balance Sheet Financing Trick Behind the Deal

What is completely ignored by the majority of Meta data center deal coverage is the residual value guarantee, or RVG.

The thing is, Meta has agreed to underwrite the facility’s residual value amounting to approximately $13 billion at various points during the following 16 years. In simple words, Meta assures BlackRock that, in case AI hardware depreciation or decrease in the value of the facility proves to be higher than expected, Meta will pay the difference.

That RVG clause is what makes BlackRock feel confident enough to provide 80% of the financing for the asset class (AI data centers) that depreciates significantly faster due to replacement of chips once every couple of years. While Meta is able to develop its infrastructure on a large scale without carrying the debt on its own balance sheet, BlackRock gets a government bond-like income flow supported by Meta’s commitment to take care of the losses. In other words, it is a one sided deal disguised as a partnership.

Such financing structures are not rare anymore; similar examples could be found in AI infrastructure investments from Microsoft and other hyperscalers during the previous year, as the industry looks for a way to finance trillion dollar expansion without every company reporting trillion dollar debt.

El Paso’s Role in the Meta Data Center Project

El Paso will see the same benefit from the Meta data center deal regardless of the ownership on the balance sheet. At the moment, the project provides more than 2,300 workers, with construction employment peaking above 4,000. Once the facility is operational, it will create approximately 300 permanent positions.

In addition, Meta provided a grant of $500,000 for El Paso public schools in order to promote STEM and trades education, as well as America’s Workforce Academy, which promises guaranteed jobs with Meta construction partners upon graduation. Meanwhile, BlackRock provides close to $30 million to the statewide electrician training program, which will produce more than 12,000 trained workers.

Water restoration programs complete the list of community investments, which helps to address one of the key concerns in the region of water scarcity.

Timeline of the Meta Data Center Campus Development

The financial part of the deal is expected to close in days after the announcement. The actual completion of the facility won’t happen before 2028, so two more years of employment and construction activity are expected before the AI workload arrives at the facility.

TheTweaks Verdict

While the deal may seem to be about El Paso or even about BlackRock, in reality it is another chapter in the story of the AI industry secretly restructuring its own infrastructure investment risks.

Meta is getting its necessary compute capacity without having to put the debt on its own balance sheet in case of a self-built facility. BlackRock is getting the long term, Meta backed income flow that is much safer due to $13 billion guarantee. At the same time, El Paso is getting thousands of jobs and investments into education, regardless of how the ownership structure of the deal looks like.

The question this deal brings us to, which investors should pay attention to, is what happens in case of AI demand slowdown before 2028, or faster obsolescence of gigawatt scale campuses due to further chip generations. Meta’s residual value guarantee will mean that it and not BlackRock, will bear those risks. At the moment, all the jobs are real and the ribbon cutting is planned on schedule. What happens with the financing structure will be seen years later.

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